Many publishers are reaching a stark realization when it comes to YouTube: There just isn’t much money to be had, not with $2 CPMs.

But for Defy Media, YouTube is a critical part of its video strategy, just not so much on the revenue front. The offspring of Alloy Digital and Break Media, which merged in October 2013, Defy Media creates regular video programming across dozens of owned and operated properties, including Break, Clevver, Smosh and The Escapist. Roughly 80 percent of its video views occur on YouTube, but 80 percent of its monetization takes place off YouTube, according to Defy’s chief executive Matthew Diamond. Its use of YouTube as an audience-development and marketing vehicle has enabled the media company to reach (self-reported) profitability while other publishers scramble to build sustainable video operations.

“YouTube has the most video views of any site in the world, so clearly if you’re a content creator, you should be dominant on YouTube,” said Diamond. “But if you’re not developing your own distribution channels, you’re missing out on an enormous paradigm shift in the media world.”

On YouTube, Defy video series including “Honest Trailers” (comedic movie trailer re-imaginings) and “Prank It Forward” (pranks for good) attract large millennial audiences. In February, Defy videos racked up 13.5 million unique viewers on U.S. desktops alone, 8.4 million of which came through YouTube, according to analytics firm comScore. Defy claims 500 million total video views on its owned and operated channels. The company incubates many of those properties on YouTube, then migrates them off the platform if they develop an avid following, said Diamond.

“YouTube is not the only game in town,” said Peter Csathy, CEO of Manatt Digital Media, a venture capital and media advisory firm. “Defy is a great data point for that reality.”

Defy generates the bulk of its revenue through off-YouTube advertising, as well as subscriptions, merchandising and app sales. Across platforms, Defy’s average pre-roll CPMs hover around $25, according to Diamond. The company attracts large audiences to its sites, and has increasingly focused on apps for mobile and connected devices. In January, the company launched “Movies on Break,” an ad-supported online movie platform with over 200 Lionsgate feature films, across iOS, Android, Roku and the Web.

Defy counts Lionsgate and Viacom as investors. Those relationships enable Defy to bring some of its top content into more traditional media channels. Defy and AwesomenessTV jointly financed “The Smosh Movie,” which stars the eponymous Internet comedy duo, and Lionsgate nabbed the global distribution rights to the feature film, which is slated to be released in November.

“If you populate a traditional [entertainment] vehicle with personalities that have already built up massive followings on their own and you keep your budget low, you have pretty much a guaranteed return on investment,” said Csathy.

But all that activity stems from YouTube, which is where Defy builds and distributes most of its content these days. Every month, it creates a slate of programming, which its sales team pitches to potential sponsors. But whether or not they get picked up from the start, Defy puts it out on YouTube, because its failures aren’t very expensive, while its successes can be very profitable, said Diamond.

“It’s a bet that is so mitigated because you can fail multiple times,” he said. “We are a content-creation company, so none of this means anything if you don’t create good content.”

Main image courtesy of Defy Media

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